Chapter 5 - THE SECOND LENDER
The biggest problem surfaced forty minutes into the Riverside meeting.
Our investment committee believed Richard’s company was contributing a certain amount of equity.
Not borrowed money.
Actual sponsor capital.
That distinction mattered because sponsor equity is supposed to absorb risk before senior lenders do.
Our underwriting team had asked repeatedly whether any portion of Caldwell Atlantic’s contribution was financed elsewhere.
Richard said no.
Paul Devlin shifted in his chair when the question came up again.
I noticed.
So did our chief investment officer, Rachel Ng.
“Mr. Caldwell,” Rachel said, “please confirm the source of sponsor equity.”
Richard answered smoothly.
“Internal company resources and partner capital.”
Rachel opened a file.
“What about Harbor Bridge Funding?”
Richard stopped.
Paul closed his eyes.
That was when I knew.
Harbor Bridge was a private lender known for short-duration, high-interest financing.
Borrowing from them was not automatically improper.
Failing to disclose it when another capital partner specifically asked whether sponsor equity was leveraged was a serious problem.
Richard said:
“That facility isn’t directly tied to Riverside.”
Rachel responded:
“It is secured by interests in two entities listed as your Riverside equity contributors.”
Silence.
Richard looked toward Paul.
Paul did not rescue him.
“How much?” I asked.
Richard’s jaw tightened.
“Twenty-two million.”
One of the pension representatives leaned back.
That changed the risk substantially.
Richard had represented his company as contributing forty million dollars of relatively clean equity.
More than half of that structure was now indirectly pressured by expensive debt.
If Riverside experienced delays—and waterfront developments always experienced delays—Harbor Bridge could create liquidity problems long before the project stabilized.
Rachel continued.
“Was this facility disclosed in the revised capital statement?”
Richard said nothing.
There was the answer.
The insult at dinner did not threaten Riverside.
That omission did.
Then another issue appeared.
Richard had also promised one set of projected returns to us and slightly more aggressive assumptions to a separate prospective investor.
Not fraud.
Not necessarily.
But inconsistent.
The project was being sold differently depending on who sat at the table.
I looked at Richard.
Suddenly his obsession with image made more sense.
Luxury car keys.
Country club.
My son’s salary.
May you like
Everything had to look stronger than it was.
Including his company.
